Detroit: Coming to a City Near You

So many governments are standing at the intersection of folly
and an empty checkbook.

By Marta H. Mossburg – 7.26.13

Detroit’s bankruptcy is about numbers: a 26 percent drop in population since 2000, 78,000 abandoned properties, $10 billion in underfunded pension and health care obligations for public employees and billions more in bond and other debt that make it impossible to pay for adequate city services.

But the real bankruptcy is moral and intellectual -- and it affects not only Detroit but almost all of America’s greatest cities and most states. Type “pension tsunami” into a search engine, read and weep. You’ll see that Detroit’s issues are only slightly worse than other cities and states around the nation with balance sheets dragged down by legacy costs and ballooning debt. A study released earlier this year commissioned by Baltimore City, for example, said it is on a path to financial ruin and requires major reforms to avoid bankruptcy. And according to a report this year on 30 cities in the most populous metropolitan areas from the Pew Center on the States, they have “74 percent of the money needed to fully fund their pension plans over the long run but only 7.4 percent of what was necessary to cover their retiree health care liabilities as of fiscal 2009, the latest year with data available for all pension plans of all 30 cities.”

And Detroit isn’t even in the worst shape on health care costs -- some of the largest expenses faced by each jurisdiction in the country --according to the report. In terms of underfunding per household, New York ($22,857) and Boston ($18,962) are both worse off. Detroit ($15,682) was third worst, with San Francisco ($13,487) and Baltimore ($10,208) rounding out the top five.

The treasuries of state and local governments, which have $3 trillion in unfunded pension liabilities to public employees, weren’t clobbered by the recession. As Frank Keegan wrote for State Budget Solutions in December 2012, general revenues in all the states as of 2011 were up $590 billion, or 56 percent, over the previous 10 years despite the recession, according to his analysis of U.S. Census Bureau data.

Neither were their elected leaders misled by erroneous fiscal reports -- if anything, they tried to mislead the public and still do with overly optimistic investment rates of return that allowed them to shortchange pension funds. The problem was that elected officials acted like a herd of intellectual lemmings, choosing not to accept facts that did not correspond to their worldview of ever expanding government.

They built convention centers and hotels for those convention centers and subsidized expensive condos and other real estate projects that either never met financial expectations or failed. Worse, they also padded pension and health care benefits for public workers without the means to pay for them. And to make up for the revenue that failed to materialize from those projects they raised taxes over and over again, often so high that people started trickling out until one day there were more takers than makers and all the people who championed those causes had failed up the food chain to higher office or lucrative private sector jobs that depended on taxpayer dollars.

That intersection of folly and an empty checkbook is where a lot of governments stand today. Detroit just happens to be in the worst shape. The only way to start fixing the problem is if more elected officials act like Baltimore City Mayor Stephanie Rawlings-Blake. The Democrat should be praised for commissioning the study noted above that laid out reforms necessary for the city to thrive and for promoting an economic agenda to make it happen. Bankruptcy just didn’t happen to Detroit. It was a choice. And it will the choice of more municipalities unless elected officials around the country fight the gimme culture whose manifestation can now be seen in the 58-minute wait time for police in Detroit, in its broken lights, its lawless streets and thousands of vacant, crumbling homes.

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